Where should our E-fund be?

[chw57]

We have 6 months of living expenses sitting in a B of A savings account... Is there a better place for it? 

[whitemerlot]

I have 6 months salary sitting in a savings account, too. It seems like a lot of money earning .75%.

[crashgizmo]

I'm a big fan of keeping a small e-fund easily/immediately accessible in a savings account and the rest in investments. For us, we have $10K in a USAA savings account earning peanuts. The rest is in investments. Although right now we have more in regular savings because of some upcoming house projects that we are cash flowing.

[cabbage10]

I was just thinking about this today. It was a joke when I opened my statement online and saw my account earned 1cent last month. Posting here so I remember to come back

[aurora]

There are so many factors involved here it's hard to give concrete advice. Here are some things I'd think about:

1. job security - if either or both of you have a very secure job, I'd be more inclined to put more of that into investments, whereas if just one of you is working at a very uncertain job I'd keep most of it in a savings account

2. total $ amount - if 6 months is $20k, I'd keep most of it in cash (so you could deal with a major car emergency, for example). If 6 months is $120k, you definitely don't need to keep it all in cash.

3. whether you have kids and own your own house - if yes to both, I'd keep more in cash

4. savings rate - if you are putting away a good bit every month, now is a great time to open an investment account with a portion of that e-fund (start by placing it into more conservative funds, then get more and more aggressive as you move along)

I'm not trying to be vague here and would be happy to discuss further if you want to provide more detail.

[Deleted]

I have mine in a CapitalOne 360 account. It still may not be the best place to kept it but it gets a hell of a lot more interest the an account at a bricks and mortar bank.

[chw57]

aurora - we have 25k in the b of a savings account. We also have some other investments through vanguard (a couple stock indexes)...
We do not own a house, but want to eventually (trying to relocate, so probably best to keep it where it is until after that happens).
I'm just trying to figure out longer term how much I can safely move to something that might earn more interest.

[chw57]

May 30, 2015 20:47:34 GMT -5 RockNVoll said:

Do you already have a fully-funded IRA? If not, I'm a fan of the idea of keeping your e-fund in a Roth IRA up to the maximum allowable amount (since contributions--but not gains--can be withdrawn from a Roth at any time without penalty or tax consequences). If your e-fund is larger than that, I'd keep some portion in cash and invest the rest.

I don't... Just a 403b. i guess I should start an IRA

[whitemerlot]

May 30, 2015 20:47:34 GMT -5 RockNVoll said:

Do you already have a fully-funded IRA? If not, I'm a fan of the idea of keeping your e-fund in a Roth IRA up to the maximum allowable amount (since contributions--but not gains--can be withdrawn from a Roth at any time without penalty or tax consequences). If your e-fund is larger than that, I'd keep some portion in cash and invest the rest.

Once you withdraw money from a Roth IRA, you aren't able to replace it, right?

[thebulldog]

We just had an extensive convo about this with our financial planner and are keeping about 10k in a basic savings account and the rest is being divided up between our roths and then some other investments.

We are making like $17 a month in interest on a serious chunk of change. It took us a long time to reach that total so i now want to see it work for us.

I have gone through two layoffs (6 months off work each time) and my father died rather unexpectedly last year leading up to about $7k in totally unplanned expenses (mainly buying plane tickets for two via cell phone).

Unemployment checks helped us get through without having to dip into it too much and we are almost done replenishing what we took out for all the funeral stuff.

So while i can come up with a few dozen doomsday scenarios in my head, we doubt we will never need like $40k Immediately. As in right now. We have enough credit to carry us in a true "car explodes" crisis that could be handled later. Based on our plan with the FP, cash could be accessed in about a week.

Some things had small penalties but honestly if we were facing an emergency that required that much cash (ie house burns down, major car accident, both of us lose jobs) we are going to have much bigger things to deal with than a few small penalties.

It is tough to tie up this much but it is the gamble of letting it just sit and letting us try to make some more money off it.

Sent from my SM-G900P using proboards

[aurora]

May 30, 2015 19:43:04 GMT -5 chw57 said:

aurora - we have 25k in the b of a savings account. We also have some other investments through vanguard (a couple stock indexes)...
We do not own a house, but want to eventually (trying to relocate, so probably best to keep it where it is until after that happens).
I'm just trying to figure out longer term how much I can safely move to something that might earn more interest.

How long until you want to buy your house? How is your down payment fund shaping up? If, for example, you have another $15k in a down payment fund, I'd also be more inclined to put more of the e-fund into relatively safe investments (you often hear municipal bonds cited as "safe" but still earning more than a savings account, but I'm not an expert in bonds by any stretch). Even safer (but lower interest) would be CD's. Note that they are timed, so you would pay a penalty to withdraw your money early, but for the ones we have the penalty is just the interest we'd earned that period so it's worth that risk to me to earn a bit more than I do in my regular savings account. Doing something like this (or RockNVoll's Roth suggestion) would be a good way to get you into investing while still largely protecting yourself in case of emergency.

In any case, depending on your risk tolerance my personal opinion (and I am not a professional in finance, so take it for what it's worth) is to start thinking about starting to invest a small portion of your e-fund in something with low fees and that is relatively safe, whether through a Roth or another investment account, but to balance that with your homeownership and other goals. I don't personally think that your current situation screams "MUST INVEST NOW!!!"

Good luck!

[chw57]

A Roth sounds like the way to go. Thank you!

[lys]

Capital 360 savings account